Carpe Diem

Rethinking Biofuel Enthusiasm

The political importance of corn-growing, ethanol-making Iowa is one reason that biofuel mandates flow from Washington the way oil would flow from the Arctic National Wildlife Refuge (ANWR) if it had nominating caucuses.

ANWR’s 10.4 billion barrels of oil have become hostage to the planet’s saviors (e.g., John McCain, Hillary Clinton, Barack Obama), who block drilling in even a tiny patch of ANWR. You could fit Massachusetts, New Jersey, Rhode Island, Connecticut and Delaware into ANWR’s frozen desolation; the “footprint” of the drilling operation would be one sixth the size of Washington’s Dulles airport.

To avoid drilling for oil in ANWR’s moonscape, the planet savers evidently prefer destroying forests, even though they absorb greenhouse gases. Will ethanol prevent more carbon-dioxide emissions than would have been absorbed by the trees cut down to clear land for the production of crops for ethanol? Be that as it may, governments mandating the use of biofuels are one reason for the global rise in food prices, which is driving demand for more arable land. That demand is driving the destruction of forests—and animal habitats. In Indonesia alone, 44 million acres have been razed to make way for production of palm oil.

If the argument for ethanol is that domestically produced energy should be increased, there are better ways of doing that. On the outer continental shelf there is a 50-year supply of clean-burning natural gas, 420 trillion cubic feet of it, that the government, at the behest of the planet’s saviors, will not allow to be extracted.

~George Will in his Newsweek article “The Biofuel Follies

Carpe Diem

Endless Economic Expansion is Not An Entitlement

Today’s Americans, their pain threshold lowered by the successful modulation of business cycles, now regard recessions as not mere misfortunes but as violations of an entitlement to perpetual economic serenity. In the 50 years prior to 1945, contractions were frequent and ferocious enough to fray the social fabric. There were three contractions of 5% of GDP, two of 10% and two of 15%. Since postwar demobilization, the most severe contraction — that of 1982, when President Ronald Reagan and Fed Chairman Paul Volcker stifled inflation — was 1.9%.

That recession ended in November 1982. If another recession did start last month, then in the 302 months from November 1982 through December 2007, the economy was in recession only 14 months — 4.6% of the time. The economy was in recession 22.4% of the time between 1945 and 1982.

A recession-free economy is neither an entitlement nor, truth be told, desirable: The “wisdom of crowds” is real but even markets make mistakes and recessions, aka corrections, are, by definition, constructive. Even so, the modern economy’s rhythms are much less alarming than any previous generation could have imagined.

From George Will’s most recent column

Note: Recessions between 1854 and 1945 lasted an average of about 20 months, compared to the average of only 10 months since 1945, and 8 months for the last two (1990-1991 and 2001).

Carpe Diem

Market Competition, and Kids in Garages Are Better Regulators Than the Department of Justice

WSJ Editorial: Remember when Microsoft was going to leverage its dominance of the operating-system market into control of the Internet? By a quirk of fate, at almost the exact moment that Justice filed suit against Microsoft in 1998, a couple of graduate students in Silicon Valley were seeking money for a little company they wanted to start. They called it Google.

Ten years on, Google isn’t so little and Microsoft is a distant No. 3 in the search market. Yahoo, the No. 2 search engine, had seen its stock fall some 80% from its dot-com-era highs before Microsoft made its bid. Remember those days? It’s funny how the one true Internet giant to emerge from the bubble wasn’t even publicly traded when the Nasdaq poked its nose above 5,000 in March 2000. Business fortunes are hard to predict.

And so while Microsoft was being excoriated for including a Web browser with Windows and then — horrors! — a media player too, Apple found a killer app in iTunes and Microsoft’s fleeting monopoly on a browser that it gave away didn’t turn out to be a cash cow after all. It’s hard to make it up on volume when the product is free.

Yes, Microsoft still makes lots of money selling Windows and Office. But the plans for world domination have been put on hold. Yahoo might help Microsoft give Google a run for its money. Or maybe — just maybe — there are some kids in a garage somewhere as you read this, writing the code that will make Google shareholders look back on its $160 billion market cap in early 2008 and weep.

We’re willing to bet that in another 10 years all of us will be using the Internet in ways not yet invented in 2008. Microsoft’s bid for Yahoo is, above all, an admission that while it was chasing the browser and media player markets, the world was moving on. That won’t stop.

Carpe Diem

The World’s Hottest Chili Pepper: 1 Million SHUs

WSJ: It’s 200 times hotter than the jalapeño. Workers handle it with goggles and face masks. And spicy-food lovers can’t wait to get their hands on it.

The bhut jolokia pepper, which is farmed in the northeast part of India, was plucked from obscurity last year when the Guinness Book of World Records declared it the world’s hottest. The standard measure for such things is the Scoville Heat Unit, or SHU, named after Wilbur Lincoln Scoville, a chemist who in 1912 developed a method of assessing the heat given off by capsaicin, the active ingredient in chili peppers. Jalapeño peppers measure about 5,000 SHUs. The bhut jolokia tops a million.

Watch a
video here of the WSJ writer trying to eat a bhut jolokia pepper.

Just another benefit of globalization and world trade!
Carpe Diem

Business and Economics Blog Rankings‘s new Traffic Rankings for Business and Economics Websites are listed above (click to enlarge) for January traffic. Based on “average daily page views,” Carpe Diem ranks #22 (out of 138), up one place from #23 last month. Of the top 22 Business and Economics websites, 8 are academic blogs (Marginal Revolution, Greg Mankiw, Economist’s View, Tax Prof, Overcoming Bias, Stephen Bainbridge, Drezner and Carpe Diem), and of the 8 academic blogs, only 4 are academic economist blogs (MR, Mankiw, Economist’s View and CD).

Note: For the Gongol rankings, only blogs that have publicly-available traffic logs are included.

For an alternative ranking, see the Economics Blog Directory & Ranking of 218 blogs, based on Technorati rankings. Carpe Diem ranks #25 there.
Carpe Diem

Putting Exxon’s Tax Bill In Perspective

Over the last three years, Exxon Mobil has paid an average of $27 billion annually in taxes. That’s $27,000,000,000 per year, a number so large it’s hard to comprehend. Here’s one way to put Exxon’s taxes into perspective.

According to IRS data for 2004, the most recent year available:

Total number of tax returns: 130 million

Number of Tax Returns for the Bottom 50%: 65 million

Adjusted Gross Income for the Bottom 50%: $922 billion

Total Income Tax Paid by the Bottom 50%: $27.4 billion

Conclusion: In other words, just one corporation (Exxon Mobil) pays as much in taxes ($27 billion) annually as the entire bottom 50% of individual taxpayers paid in 2004 (most recent year available), which is 65,000,000 people! Further, the tax rate for the bottom 50% was only 3% of adjusted gross income ($27.4 billion / $922 billion) in 2004, and the tax rate for Exxon was 41% in 2006 ($67.4 billion in taxable income, $27.9 billion in taxes).

Carpe Diem

Tax Rebate Smackdown III

In his ongoing tax rebate smackdown with Jason Furman in the LA Times, Economist Steven Landsburg poses this interesting question: “Why weren’t last year’s unemployed worth helping?”

People lose their jobs all the time. An above-average number might have lost their jobs in December, but plenty of others lost their jobs in November, or October, or a year ago. Why should people who endured this trauma last year — and others who will endure it a year from now — be taxed to help those who happen to be enduring it today?

It seems fundamentally unfair to say that we’ll help you out with an expensive stimulus package if you lost your job this month, but we’ll foot you with the bill for that package if you lost your job a year ago and then found your way back into the workforce. Not only is it unfair, but if the package doesn’t work, it’s unwise to boot.

The economy does not need to be stimulated so much as people need to find new ways to be useful. If you’re good at building houses and too many houses have been built, then sooner or later you’re going to have to become good at doing something else. It is a false favor to delay that process.

Carpe Diem

Recession Probability? Only 1 Out of 17 Chance

Payrolls Unexpectedly Decline, Increasing Odds of Recession:

“U.S. employment unexpectedly tumbled last month for the first time in more than four years, fueling worries that the U.S. economy which already limped into 2008 might soften further or even slip into recession in coming months.”

Most reports on today’s employment report were pretty negative, like the WSJ story above. But wait a minute, don’t forget the recent study by labor economist Tim Kane (discussed on CD a few days ago), which finds:

“Among popular monthly labor measures, the unemployment rate is the most useful as an indicator of recession, whereas two top measures of employment growth –payroll jobs and civilian employment –have little value. The best pre-recession employment indicator is actually weekly claims for unemployment insurance (UI).”

According to economist Tim Kane, in an email to Greg Mankiw:

“The Recession Probability Index is a combination of the two most valuable employment indicators of a recession’s early stages: weekly initial unemployment insurance (UI) claims and the unemployment rate. In this morning’s BLS Employment Situation report for Jan 2008, the unemployment rate is 4.9%. The 4-week moving average of initial UI claims is 325,750, or 17,000 lower than 4 weeks ago and essentially unchanged from the October average. Therefore the new employment-based recession probability index (RPI) is 6.0%.”

Note: In December 2007, there was a 35.5% chance that the U.S. economy was in recession according to Kane’s model, so the drop to only 6% now is significant (see chart above, red line has been added to update the chart, click to enlarge).